Explain how the news released could affect the company

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Reference no: EM133210632

Case: A company that you target to invest in has just announced that it has successfully obtained a seven-year bank loan for its business' future expansion. The news urges you to re-evaluate the company's financial position. With that, you would like to conduct a thorough financial analysis on the new loan of the company.

Question 1: What kind of analysis should you conduct on the company's new debt financing?

Question 2: Explain how the news released could affect the company's stock prices given the market is in semi-strong efficiency.

Question 3: Explain FOUR (4) aspects of evaluation that you can perform for the financial analysis in (a).

Question 4: After analysis, you find that the additional seven-year loan financing has taken up 90 percent of the debt-to-total capital of the company. Explain how a high ratio of total debt to total capital is relevant to the company's financial performance.

Question 5: Since the new loan is seven-year long, you would like to conduct a long-term earnings forecast. Discuss in detail how to perform the earnings forecast and the limitation of the forecast.

Question 6: Given the seven-year financing has reduced the company's debt capacity, the company also reveals that off-balance-sheet financing may be adopted in the future if needed. Based on the statement made by the company, you need to find out how off-balance-sheet financing is operated, and find out THREE (3) examples of off-balance-sheet financing.

Question 7: You also find out that part of the seven-year financing is expensed for research and development (R&D) purposes. Discuss how the cost of R&D could affect the quality of earnings forecast.

Reference no: EM133210632

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